As much as we would like to be able to, there is precious little our team of mortgage brokers at Global Finance can do about rising interest rates. Working out ways to deal with increases in interest rates on your home mortgage, however, is something we can help you with.
Protecting mortgage repayments
For many New Zealanders, rising interest rates may come as a bit of a financial shock. Mortgage interest rates in New Zealand have been going in a mainly downward direction since about 2008 and for many first home buyers, cheap mortgages and ever-increasing housing values are the only economic environment they have ever known. Some of us ‘older borrowers’ may also have forgotten what it is like to live in an environment where house prices are flat or falling, while borrowing costs are rising. But things have changed and now is a great time to talk to an expert at Global Finance to discuss how you can protect yourself from those interest rate shocks now and into the future.
The financial squeeze
In May 2021, the average two-year fixed rate offered by the major New Zealand banks was at an all-time low of 2.52%. 5-year fixed rate mortgage rates are now above 6% and many expect rises to around 7.5% over the coming year.
We’re all experiencing cost increases on everything from petrol to groceries, so for those who borrowed when interest rates were at their lowest, they might find themselves financially ‘squeezed’.
So, how can we help?
Now more than ever, getting the right financial advice is valuable.
In November last year, approximately 86% of New Zealand mortgages were fixed and 70% of the value of those mortgages were due to come off a fixed rate in one year or less. This means a lot of Kiwi households will need to make the fix-or-float choice and as financial advisors, we recommend you seek get professional help with that fix-or-float or refinancing decision.
The worst thing anybody can do if their mortgage needs to be refixed, or if they’re on a floating rate, is to put their head in the sand and ignore it. To discuss your situation, especially if you’re feeling a little overwhelmed by the prospect of rising interest rates, simply get in touch.
Refinancing: changing loan structures or lenders
Changing the structure of your mortgage from a floating rate to a fixed rate, re-fixing for a different time frame, taking out a consolidation loan to pay off other debt or getting a mortgage from another lender could save you money.
Before changing, it is very important to look carefully at the costs and possible savings.
Breaking a fixed-term mortgage for a higher rate
It may be worth re-fixing your loan for a two, three years or even five years. Some homeowners are choosing to switch from their low fixed rate now to a higher one. Interest rates are predicted to keep rising, so refixing at the lower rate now could be the key to keeping your home loan repayments manageable.
Another option to consider is dividing your mortgage and fixing portions on different terms. As they mature at different times, you won’t be as exposed to interest rate movements.
Deciding on the terms of a fixed mortgage comes down to flexibility over security, while considering the historic ups and downs of the market. Trying to decide what your best move is in this tumultuous market? We’re here to help! Call Global Finance today, and we’ll talk you through all the best mortgage options available.
Using the increased value of your home
If you bought your home with less than a 20% deposit, you may have been charged an extra 0.25% to 1.5% per annum. This low equity premium (LEP) will have depended on the size of your deposit and your lender and can add up to a sizeable chunk of your mortgage. If your home is now worth more, you may be able to negotiate to remove any low-equity premium you’re being charged.
Bundling debt
Consolidating debt can reduce your monthly outgoings considerably. If you have other loans with high interest rates, e.g., a car loan, buy now pay later debt, laybuy, overdraft, or credit card debt, you could look into paying off these loans by increasing the amount of your mortgage.
Consolidating debt only works if you do it right. You need to be careful you don’t end up paying more over time. It is not the best method for all types of debt because even though you may be paying lower repayments, paying them over a longer term can add to the overall cost. Speak to our specialised finance advisors so we can make sure savings outweigh any costs before you go ahead.
More frequent payments
Switching from monthly mortgage repayments to fortnightly means you are effectively paying the loan more frequently, reducing the total amount of interest you’re charged over the life of your loan and saving you money. You will need to talk to your bank to arrange for this and there might be charges, so check with one of our mortgage specialists first.
Coping with rising interest means reviewing how you spend your money
I guess it goes without saying that in times of rising interest rates, we all need to look at our spending and this is also an area where we can help.
A budget can provide a feeling of control and can mean the difference between being able to plan as opposed to going into panic mode and we can help you work one out. We can help you see whether your current mortgage payments are as big as you can comfortably afford. Even boosting repayments by $25.00 a week may save thousands of dollars in interest, which means you could be mortgage-free months or even years earlier.
Managing money can be challenging
A financial adviser can be a great help. They focus on your individual goals and current financial situation, and they balance your needs over the short, medium, and long terms. To discuss your situation, especially if you’re feeling overwhelmed by the prospect of rising interest rates, please reach out.
**These are general guidelines and are by no means a reflection of bank or lending policies